For quite a period, cryptocurrency had been remaining a “no-go zone” for traditional investors, seeing security risks and volatility as the core hurdles. Now, things have changed: Bitcoin is adopted by investing giants, and banks seek crypto’s place in their financial systems.
To find out “behind the scenes” details of cryptocurrency rapid adoption, Sarah Holder spoke with Olga Kharif – Bloomberg Senior Reporter – as part of the Big Take Podcast. Below – an excerpt from it on how the traditional financial institutions have gotten behind the technology that underpins digital assets – and what that means for the rest of the industry.
“The baseball caps have turned into suits”
Over the years of crypto’s existence, the industry has evolved, and so have the adepts of it. Erstwhile, the participants of the industry mainly envisaged the “passionate nerds who believed in the power of cryptocurrency as a way to manage their money beyond government oversight, but who didn’t know a ton about business”, as per Olga Kharif.
…there was Charlie Shrem who started BitInstant in his early 20s. It was a way to use Bitcoin for payments at merchant locations, and eventually he ended up going to prison because he didn’t register it as a money transmission business.
Now, the crypto payments have advanced. A lot of commodities and services can be purchased for it: real estate, phones, and even football tickets. Indeed, many crypto exchanges i.e. Kraken, Coinbase, and WhiteBIT are entering sports, while the latter one is participating in Sport Tomorrow Congress by Barcelona FC and offering to purchase football tickets for buying by crypto.
Still, the landscape only altered while crypto has become more adopted by institutional investors and traditional financial companies. Kharif noticing the tendency, saying:
Where, you know, in the early days you saw all those people in t-shirts and baseball caps, you know, true believers in Bitcoin’s potential to change the world. Whereas now you see people in business suits, people who used to work at Goldman, people who used to work at JP Morgan, and they’re either leading these efforts at those same firms, or they went into some crypto companies and they’re leading charge there.
But the landscape did not alter at one fell swoop. In fact, the financial companies have been dabbling in blockchain or crypto for years. For instance, Franklin Templeton has been pushing crypto-based services for over seven years.
The trend has now boosted, as a lot of fiat-money companies study or integrate cryptocurrency and blockchain-based facilities. Thus, JP Morgan is exploring deposit tokens that would represent customer deposits on blockchains, and many financial companies are involved in stablecoins, which represent fiat. Among the ones are BlackRock, BNY Mellon, Cantor Fitzgerald and others.
According to Kharif, it is FTX collapse that serves as one of the drivers for crypto institutional adoption. Despite the fact that Sam Bankman-Fried’s case is considered to be a harsh catastrophe for the crypto industry’s reputation, it turned out to be a blessing in disguise. The collapse proved that a long-standing financial institution indicates more credibility than a Web3 company.
…what FTX did change for a lot of retail investors is their belief that a crypto native new company is maybe less trustworthy or less stable than somebody like, you know, BlackRock or Goldman or somebody with experience in the traditional financial world. Somebody who adheres to regulation, somebody who’s been around for many, many years.
What ETF Means For Crypto, and How It Reshapes the Industry
After 10 years of attempts and rejects, Bitcoin exchange-traded funds have been approved by the US Securities and Exchanges Commission (SEC). It was followed by the application of BlackRock last summer that kick-started the action by Fidelity, VanEck, and other large institutions.
As a result, Bitcoin ETF approval generates billions of dollars of inflows, positively impacting the Bitcoin price and signalling mainstream adoption of it. But more pivotally, it levelled the obstacles for traditional investors and normal everyday users.
As Kharif says, the roadmap Bitcoin came with “a lot of the hassle” – registration on exchange, completing KYC, and finding out about how to purchase Bitcoin yourself.
…now you can invest into this Bitcoin ETF through your brokerage, and it’s as easy as buying shares in a company. And so this essentially opens up crypto to your typical, not tech savvy, you know, just normal everyday user.
Thus, the Bitcoin ETF also unlocked the investment opportunities for those who saw crypto companies as untrustworthy – and considered the financial institutions only as credible.
Banking Adoption and Future of Crypto
Despite the fact that banks and financial institutions are starting to enter crypto, it’s hard to call it an adoption. According to Kharif, “it’s fair to say a lot of them are dabbling and experimenting with this”. The main hurdle for crypto’s full implementation remains to be the absence of regulations.
The matter of crypto legislation comes with the enforcement actions from the SEC, the CFTC, and from the Department of Justice. As per Khalif, “this goes completely against the grain of what the early adopters believed and wanted”
Nevertheless, the attention of state bodies brings the adoption closer.
…I think at the same time, with this technology and these coins, they would have been very niche if that continued to be the case. There wouldn’t be the same kind of mass adoption that we are starting to see now.